Judge: Jon R. Takasugi, Case: 24STCV09682, Date: 2024-12-03 Tentative Ruling

Case Number: 24STCV09682    Hearing Date: December 3, 2024    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

          Defendant’s motion to compel arbitration is GRANTED. This action is stayed pending the completion of arbitration.

          On 4/17/2024, Plaintiff Sharon Davidson (Plaintiff) filed a representative action against DG Premium Brands, LLC, alleging civil penalties under the Private Attorneys General Act.

          On 10/14/2024, Defendant moved to compel Plaintiff to arbitrate her Complaint, and stay this action.

Legal Standard

“Where the Court has determined that an agreement to arbitrate a controversy exists, the Court shall order the petitioner and the respondent to arbitrate the controversy …unless it determines that…  grounds exist for rescission of the agreement.” (Code Civ. Proc., § 1281.2.) Among the grounds which can support rescission are fraud, duress, and unconscionability. (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239.) The Court may also decline to compel arbitration wherein there is possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2 (c).)

Discussion

1.     Defendants’ Burden

The party moving to compel arbitration “bears the burden of proving [the] existence [of an arbitration agreement] by a preponderance of the evidence.” (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 413.) The moving party also bears the burden of demonstrating that the claims fall within the scope of the arbitration agreement. (Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961.)

A.   Existing Agreement

Defendant submitted evidence that Plaintiff entered into an Arbitration Agreement  (Agreement) with Defendant on 2/3/2023. (Chu Decl., Exhs. B, C.)

          In opposition, Plaintiff does not dispute signing the Agreement. While Plaintiff argues that there was no mutual ascent to the Agreement, the Court finds this argument unavailing. While Defendant did not electronically countersign the agreement after Plaintiff’s signature, there is no indication that Defendant would argue that it was not bound by the Agreement, or that it did not manifest an intent to be bound by the agreement.

As for the coverage of Plaintiff’s claims, the Arbitration Agreement expressly provides that: 1) “[a]ll claims that are covered by [the] Agreement can only be brought…on an individual basis”; and 2) “any…dispute which as expressly provided by law may not be submitted to arbitration, [is] not covered by [the] Agreement.” (Chu Decl., Exh. B, p. 1.) Read together, these provisions require that Plaintiff submit her individual PAGA claim to binding arbitration.

          The U.S. Supreme Court has held that the representative PAGA claim Plaintiff seeks to bring on behalf of others is not subject to arbitration. (Viking River Cruises, Inc. v. Moriana (2022) 596 U.S. 639, 662.) However, the Supreme Court expressly found that individual PAGA claims are subject to arbitration. (Id.; see also Barrera v. Apple American Group LLC (2023) 95 Cal.App.5th 63, 86 (individual PAGA claim ordered to arbitration where the arbitration agreement required that any arbitration would be on an individual basis). Notably, Plaintiff did not advance any argument that the Agreement does not cover Plaintiff’s individual PAGA claim, or that her individual PAGA claim would not be subject to arbitration.

Given that Defendant has established by a preponderance of the evidence that an arbitration agreement exists, and that Plaintiff’s claims are covered by that agreement, the burden shifts to the Plaintiff to establish that the arbitration clause should not be enforced. (Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236. (Pinnacle).)

2.     Plaintiff’s Burden

The party opposing arbitration bears the burden of proving, by a preponderance of the evidence any defense, such as unconscionability or duress. (Pinnacle, supra, 55 Cal.4th at p. 236.)

“Unconscionability has both procedural and substantive elements. Although both must appear for a court to invalidate a contract or one of its individual terms, they need not be present in the same degree: ‘[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.’”  (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469. (“Roman”).) Where the degree of procedural unconscionability is low, “the agreement will be enforceable unless the degree of substantive unconscionability is high.” (Ajamian v. CantorCO2e (2012) 203 Cal.App.4th 771, 796 (Ajamian).)

A.   Procedural Unconscionability

“Procedural unconscionability focuses on the elements of oppression and surprise. ‘Oppression arises from an inequality of bargaining power which results in no real negotiation and an absence of meaningful choice … Surprise involves the extent to which the terms of the bargain are hidden in a ‘prolix printed form’ drafted by a party in a superior bargaining position.’” (Roman, supra, 172 Cal.App.4th at p. 1469.)

Plaintiff argues that the agreement is procedurally unconscionable because (1) it is a contract of adhesion, and (2) a copy of the applicable AAA rules were not attached to the agreement.

I.      Adhesion Contract

Where pre-employment adhesion contracts are involved, a degree of procedural unconscionability is always present. This is because, “the arbitration agreement stands between the employee and necessary employment, and few employees are in a position to refuse a job because of an arbitration agreement.” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071 (Little).)  However, where “there is no other indication of oppression or surprise, the degree of procedural unconscionability of an adhesion agreement is low, and the agreement will be enforceable unless the degree of substantive unconscionability is high.” (Ajamian, supra, 203 Cal.App.4th at p. 796.)

Therefore, while Plaintiff is correct that including the arbitration clause within a contract of adhesion indicates a degree of procedural unconscionability, there must be other indications of oppression or surprise to render the agreement unenforceable. (Little, supra, 29 Cal.4th at p.1071; Ajamian, supra, 203 Cal.App.4th at p. 796.)

II.             Copy of AAA-Rules

As additional evidence of procedural unconscionability, Plaintiff points to Defendant’s failure to attach a copy of the applicable AAA-rules to the Arbitration Agreement. However, courts have held that a failure to attach arbitration rules is insufficient, by itself, to sustain a finding of procedural unconscionability. (Peng v. First Republic Bank (2013) 219 Cal.App.4th 1462, 1469.) Furthermore, the applicable rules are available online.

The Court concludes that Defendants’ failure to directly attach a copy of the applicable AAA rules does not amount to procedural unconscionability. Because Plaintiff has shown no other indication of oppression or surprise outside of the existence of an employment adhesion agreement, the agreement will be enforceable unless Plaintiff can demonstrate a high degree of substantive unconscionability. (Ajamian, supra, Cal.App.4th at p. 796.)

B.    Substantive Unconscionability

Plaintiff argues the Arbitration Agreement is substantively unconscionable because (1) it has an unenforceable confidentiality of information/non-solicitation provision; (2) it not mutual; (3) it fails to guarantee an award of attorney fees to the Plaintiff if she is the prevailing party; (4) it has a wholesale waiver of PAGA actions.

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results,’ that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner.” (Roman, supra, 172 Cal.App.4th at pp. 1469-1470.) Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided,’ in favor of the employer without sufficient justification. (Id.) Common examples of substantive unconscionability include “when ‘the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration’” (Id.), or when employees are required to pay excessive fees to gain access to the administrative forum. (Armendariz, supra, 24 Cal.4th at p. 90-91.)

“Where appropriate, courts have discretion to sever or limit the application of unconscionable provisions and enforce the remainder of an arbitration agreement under Civil Code section 1670.5, subdivision (a).” (Ramos, supra, 28 Cal.App.5th at p. 1065.) Circumstances in which severability can be appropriate include where the unconscionability can be cured by striking the offending clause or clauses. (Id. at p. 1069.)

          As for the first contention, Plaintiff argues that the Arbitration Agreement and the “Agreement Regarding Confidentiality of Information and Non-Solicitation,” should be read together, as they were presented on the same date and during the same single primary transaction. Moreover, the “Agreement Regarding Confidentiality of Information and Non-Solicitation” requires Plaintiff to agree without any dispute that “Company’s Confidential Information constitutes valuable trade secrets of the Company that have independent economic value. As a result, Plaintiff argues that “there is no mutuality here as it presumes certain legal predicates and harm against Defendant, but does not presume any elements of any of Plaintiff’s potential claims.” (Opp., 10:6-8.)

          However, to show that this constitutes substantive unconscionability, Plaintiff cites Alberto v. Cambrian Homecare (2023) 91 Cal.App.5th 482, 493. However, there the Confidentiality Agreement and Addendum required Alberto to agree in advance to the existence of irreparable injury and required Alberto to consent to the issuance of an injunction. Here, by contrast, Defendant’s Agreement defines the Company’s Confidential Information as valuable trade secrets of the Company which have independent economic value. Beyond that, the agreement does not unilaterally define irreparable injury, nor does it require Plaintiff to consent to the issuance of an injunction. As such, the Court finds Alberto to be insufficiently analogous to establish substantive unconscionability here.

          As for Plaintiff’s contention that Plaintiff’s employment with Defendant as a Sales Manager does not fall within one of the statutory exceptions for non-compete agreements, a factual determination is not appropriate at the pleadings stage as to the enforceability of the Non-Compete Provision. Rather, it is sufficient for the Court to determine that this provision could be severed from the Agreement in order to cure any unconscionability. The Court finds that it could be.

          Plaintiff also argues that the strict obligations imposed upon by Plaintiff by the provision will force her “to engage in cost prohibitive formal discovery procedures to the extent they exist in arbitration.” (Opp., 14: 13-14.) However, this is speculative, and Plaintiff does not cite any analogous case law to show that Courts have found this conduct to be evidence of substantive unconscionability.

As for the third contention, the agreement provides that “[i]f any party prevails on a statutory claim that affords the prevailing party attorneys’ fees and costs . . . the Arbitrator may award reasonable attorneys’ fees and costs to the prevailing party.” (Flores Decl., Exh. A.) As such, the Agreement does not limit the ability to recover attorney fees or any type of relief otherwise available in court because the Arbitration Agreement states that the Arbitrator “has the authority to award the Parties all form[s] of relief that would otherwise be available to the Parties in a court of law …” (Id.) As such, the Court interprets the Agreement’s use of “may award” as affirming the arbitrator’s ability to award any fees and costs Plaintiff would otherwise be entitled to as prevailing party. The Court is therefore unpersuaded that this is an indication of substantive unconscionability.

          As for the final contention, the arbitration agreement provides in relevant part that: “All claims that are covered by this Agreement can only be brought by me or the Company on an individual basis. The Company and I agree to waive any right to join or consolidate claims with others, or to make any claims as a representative of a class, or in a private attorney general capacity.” While an arbitration agreement’s wholesale PAGA waiver is unenforceable as a matter of law, it can easily be severed from the Complaint without fundamentally altering the parties’ agreement regarding the scope of arbitration and the powers of the arbitrators to provide relief. (Ramos, supra, 28 Cal.App.5th at p. 1065.)

The Court concludes that Plaintiff has only shown a degree of substantive unconscionability. While Plaintiff has demonstrated a degree of procedural unconscionability, she has not demonstrated sufficient substantive unconscionability to render the Agreement unenforceable, The Court finds that the arbitration agreement is enforceable. (Ajamian, supra, Cal.App.4th at p. 796.)

Based on the foregoing, Defendant’s motion to compel arbitration is granted. This action is stayed pending the completion of arbitration, after a weighing of the factors set forth in Landis v. N. Am. Co. (1936) 299 U.S. 248.

It is so ordered.

Dated:  December    , 2024

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar.  For more information, please contact the court clerk at (213) 633-0517.